Many happy returns
FIVE-MINUTE GUIDE TO... INFLATION-BUSTING SAVINGS RATES
WE ARE suddenly living in a golden age for savers as inflation plunges but the Bank of England (BOE) refuses to cut interest rates, which mean that nearly every savings account is paying an inflation-busting return.
Savers deserve some good fortune after getting next to nothing on their cash deposits for more than a decade, especially the elderly who saw their retirement income ravaged as a result.
The damage was done by the financial crisis, which forced the BOE to slash base rates almost to zero in March 2009, where it kept them until inflation took off.
Lately, savers have been getting more than 5 per cent but still finding their deposits shrinking in real terms as inflation flew to a high of 11.1 per cent in October 2022.
That has now gone into reverse, with consumer price inflation tumbling to 2.3 per cent in April, while the BOE has been holding bank rate at 5.25 per cent since last August.
Nine-out-of-10 savings accounts now beat inflation and experts are urging savers to take full advantage by shaking off their inertia and shopping around for a better deal.
A staggering 1,558 savings accounts and cash Isas beat inflation today, according to Moneyfactscompare.co.uk, including hundreds of easy access, notice and variable rate accounts, and a heap of fixed-rate bonds.
Fixed rates have dipped slightly in anticipation of the first BOE rate cut but that keeps getting pushed back and is unlikely to land before the election.
Moneyfacts spokesperson James Hyde said savers are finally getting a real return on their cash, with both fixed and variable rates holding firm. “As always, consumers must be willing to switch if more attractive options are available.”
Monument Bank and Close Brothers top the easy access, best buy chart, paying 5.01 per cent and 5 per cent respectively. Close Brothers pays 5.16 per cent on its one-year fixed rate bond, while RCI Bank pays a fixed 5.05 per cent a year for two years, and Shawbrook pays 4.57 per cent for five years. Rates change all the time so if you see one you like, go for it.
Do not just plump for the account that pays the highest rate of interest, said Hyde: “Review all relevant criteria, as eligibility and access are also important.”
Check whether you can meet the minimum balance requirement, which may range from £1 to £10,000 or more.
Decide whether you want branch or postal access.this will involve a sacrifice, as the best rates are available online.
As rates remain high, many savers are “sleepwalking” into an unexpected tax bill, warned Shawbrook head of savings Adam Thrower.
Two in five think they do not earn enough interest to pay tax on their savings, including one in 10 who have more than £20,000 of savings outside of an Isa. “Yet for a basic rate taxpayer, getting 5 per cent interest on £20,000 could tip them over the personal savings allowance (PSA).”
Under the PSA, basic rate taxpayers can earn up to £1,000 interest a year without paying tax on it, which falls to £500 for higher rate taxpayers.additional rate 45 per cent taxpayers do not benefit from the PSA.
These thresholds have not been changed since the PSA was introduced in 2016, at a time when savings rates were much lower, said Thrower: “As interest rates remain high, many could exceed the PSA for the first time, unless they take steps to minimise this by saving in a tax-free cash Isa instead.”
Now may be a golden time to be a saver but it takes a bit of effort to really make your deposits shine.